San Diego Zoo and State Tangle Over Value of Animal Trades : Levies: Tax board says park owes $3.5 million in taxes. But they're barking up the wrong tree, officials respond.

SACRAMENTO — Forget the doggy in the window. How much for the extremely rare okapi at the world-famous San Diego Zoo?

Not much, if you believe the zoo's own accounting ledgers. The nonprofit society lists the cash value of its entire 3,300-animal collection--which ranges over 800 sometimes exotic and endangered species--at just a dollar.

But state tax officials have a radically different notion, and they are asking the venerable animal park to pay $3.5 million in back taxes and penalties for an extensive number of animal trades the zoo made during the 1980s, The Times has learned.

At issue is how to set a price on the zoo's remarkable collection of animals, which draws more than 3 million visitors a year and is considered one of the world's best.

A confidential tax audit conducted by the State Board of Equalization says that the 2,000 animals the zoo traded between 1984 and 1987 are worth an estimated $19 million, according to interviews and documents obtained by The Times.

The zoo was obligated to report and pay sales tax on the transactions, considered taxable barters under the state law, a high-ranking source with the tax board said. Instead, zoo officials claimed no knowledge or records of the trades when the tax agency began looking at the question during a routine audit in 1987, the source said.

Shortly afterward, however, a Board of Equalization auditor based in San Diego discovered the existence of zoo records "listing trades and assigning values" for the animals, the source said. The list shows the international species number, scientific names and "per unit" prices of 1,992 mammals, including such rare or exotic species as the okapi, an African rain forest relative of the giraffe that is critically endangered; Przewalski's horses and the slender-horned gazelle.

The auditor's discovery prompted the tax agency to begin an unusual 5 1/2-year examination of the organization's books, the source said.

In all, the audit found that the zoo had not paid sales tax on $33 million in transactions, including animal food purchases, the receipt of architectural sketches and models, sales by zoo gift shops and supplies withdrawn from the warehouse for internal use.

The agency sent a $3.515-million bill to the zoo in April, 1991, triggering a dispute that continues to drag on.

In March, the zoo's attorney sent a letter to the tax board protesting its "Draconian tactics" and accusing it of using "novel and untested theories of taxation" during the audit. The Times obtained copies of the letter and a list of the animals in dispute.

Zoo attorney Neil P. Balmert argued that the organization's animals are not taxable because, in accounting terms, they aren't worth much. How can you judge a fair market value for something so rare and endangered that you need a federal permit to possess it?

"It is impossible to put a monetary value on animals which are often one of only a few such animals in captivity and perhaps one of the few remaining animals in a species," wrote Balmert, adding that the zoo's balance sheet follows acceptable accounting procedure by listing the value for all its plants and animals as "$1."

Balmert also argued that many of the animals cited in the tax audit should be tax-free because they were given as loans or gifts.

And, as an added measure, he said the nonprofit Zoological Society should not be held liable for taxes because the animals and exhibits at the 100-acre park are owned by the city of San Diego.

Balmert offered to pay a $300,000 settlement but the Board of Equalization has refused and an agreement has yet to be reached.

The Board of Equalization source disputed the claim that the animals have no value, noting that zoos insure the animals and commonly have a book showing how much each costs.

On Friday, zoo spokesman Jeff Jouett said the tax "nightmare" was triggered by personal differences with one unidentified state auditor from San Diego. He said the auditor began an accounting vendetta after zoo officials filed a complaint against her for leaving the organization's files in a disheveled condition.

The battle with the Board of Equalization, he said, has consumed more than $1 million in attorney fees and staff time. At one point, he said the zoo had to spend nearly three months printing out computer copies of more than 3,000 financial accounts at the request of the auditor.

Jouett also said the list of animal trades purportedly discovered by the auditor is actually an animal inventory list provided voluntarily by zoo officials. He denied that the zoo was trying to hide records.

"It's a blatant falsehood to say we withheld any information," he said. "We were very forthcoming."

Using such a list, Jouett said, is "shoddy auditing practice and that's where this auditor's problems started--because she didn't know what she was working with and what it represented."

But even if you go along with the auditor's assumptions--that the inventory list showed taxable trades--Jouett said zoo officials believe her calculations were way off. He said the list includes 557 animals that either died or were transferred between the 1,000-acre zoo, near downtown San Diego, and its sister 2,200-acre Wild Animal Park, 30 miles north.

Jouett emphasized that the zoo pays taxes when it buys an animal or trades for one, but said the transactions questioned by the audit were neither.

The pared-down inventory list, Jouett said, would have an estimated value of $1.8 million, leading to only $109,500 in taxes.

Jouett said Friday that the deadline for negotiations between the zoo and the state over a settlement has been extended to June, 1994. The tax board offered a reduced bill of $1.5 million, he said, but the zoo rejected it.

He also said the zoo will seek legislative relief next year from issues raised in the tax audit.